Estate of Reddert v. US

• Decision Date: 10 April 1996
• Docket Number: Civil Action No. 95-678 (AJL).
• Citation: 925 F. Supp. 261
• Parties: ESTATE OF Esther D. REDDERT, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of New Jersey

925 F. Supp. 261

ESTATE OF Esther D. REDDERT, Plaintiff, v. UNITED STATES of America, Defendant.

Civil Action No. 95-678 (AJL).

United States District Court, D. New Jersey.

April 10, 1996.

Robert D. Borteck, Riker, Danzig, Scherer, Hyland & Perretti, Morristown, New Jersey, for Plaintiff.

Faith S. Hochberg, United States Attorney, Susan C. Cassell, Assistant United States Attorney, United States Attorney's Office, District of New Jersey, Newark, New Jersey, Gregory S. Hrebiniak, Trial Attorney, Tax Division, United States Department of Justice, Washington, D.C., for Defendant.

OPINION

LECHNER, District Judge.

This is an action brought by the Estate of Esther D. Reddert (the "Estate") against the United States of America (the "Government") seeking recovery of Federal estate tax, interest and penalties. A complaint (the "Complaint") was filed on 14 February 1995. Jurisdiction is alleged pursuant to 28 U.S.C. § 1346(a)(1). Currently before the court is a motion for summary judgment filed by the Estate (the "Estate Motion") and a cross-motion for summary judgment filed by the Government (the "Government Cross-Motion").¹ For the reasons set forth below, the Estate Motion is denied and the Government Cross-Motion is granted.

Facts

A. Background

Earl J. Reddert ("Earl") executed his Last Will and Testament on 9 November 1978 ("Earl's Will").² Stipulation, ¶ 1; Earl's Will at 14. The parties agree Earl's Will established a trust (the "Trust") from which the remainder interest is payable outright to eleven charitable organizations recognized by the Internal Revenue Service (the "IRS") as exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code (the "Code"), 26 U.S.C. § 501(c)(3) (the "Section 501(c)(3) Charities").³ Stipulation, ¶ 2; Earl's Will at 3-7. Earl died on 31 December 1978. Stipulation, ¶ 3. Earl's wife, Esther D. Reddert ("Testatrix") executed her Last Will and Testament on 9 July 1985 ("Testatrix's Will").⁴ Id., ¶ 4; Testatrix's Will at 8. Under the terms of Testatrix's Will, her residuary estate pours over into the Trust. Stipulation, ¶ 5; Testatrix's Will at 4-5.⁵ Testatrix died on 4 January 1987. Stipulation, ¶ 6.

B. The Trust

The Trust provides, inter alia, upon the death of Earl, net income of the Trust is to be used for the benefit of Testatrix. Id., ¶ 8; Earl's Will at 3. After the death of Testatrix, the net income of the Trust is to be used for the benefit of Earl's daughter Audrey Oakes ("Oakes"). Stipulation, ¶ 8; Earl's Will at 3-4. Upon the death of Testatrix and Oakes, the Trust is to be divided into a number of shares equal to the number of then living children of Oakes plus one additional share for each child of Oakes who predeceases her leaving then surviving issue. Stipulation, ¶ 9; Earl's Will at 4-5. After the payment of $75,000.00 in principal toward each such share, whether paid to the child outright or from a trust established for the child's benefit (or a deceased child's issue's benefit), the remainder is to be poured into the Trust and distributed to certain enumerated Section 501(c)(3) Charities set forth in the Trust. Stipulation, ¶ 10; Earl's Will at 5-6.

The parties agree Testatrix's Will provides a bequest of $5,000.00 to each great grandchild of Testatrix born or adopted after her death and during the continuation of the Trust. Stipulation, ¶ 11; Testatrix's Will at 4-5.⁶ Testatrix's Will also directs all death taxes to be paid out of the residue of her estate. Stipulation, ¶ 14; Testatrix's Will at 8.

C. The Estate Taxes

1. Initial Payment of Taxes and IRS Audit

The parties agree the Estate declared and timely paid $155,680.00 in Federal estate taxes with the filing of its Federal estate tax return on or about 15 September 1987. Stipulation, ¶ 15. The IRS audited the Estate's tax return and presented adjustments resulting in a Federal estate tax deficiency plus statutory deficiencies (the "Alleged Deficiencies"). Id., ¶ 16. The Alleged Deficiencies resulted from three adjustments to the gross estate of Testatrix: "(a) A $22,500 increase in the value of certain real property; (b) Denial of $93,000 in funeral and administration expenses; (c) Denial of $593,964 of charitable deductions consisting of outright gifts to charity and a $539,964 gift in the form of a charitable remainder trust." Id., ¶ 17. On or about 2 March 1990, the Government assessed the Alleged Deficiencies against the Estate requiring payment of additional Federal estate tax in the amount of $240,810.00 and statutory additions of $72,275.24. Id., ¶ 18.

2. The Estate's Claims for Refund

On or about 18 June 1990, the Estate filed a Claim for Refund of Federal estate tax (the "Claim for Refund I"). Id., ¶ 19; Complaint, Exh. A. On or about 4 April 1992, the IRS permitted $68,712.00 of the Claim for Refund I (the "Permitted Claim") and disallowed $172,098.00 of the Claim for Refund I (the "Disallowed Claim"). Stipulation, ¶ 20. The Permitted Claim resulted from a $22,500.00 decrease in Testatrix's gross estate relating to valuation of real property and a $167,642.00 increase in deductions due to the allowance of $126,642.00 for executor's commissions and attorney's fees and $41,000.00 for certain outright charitable contributions. Complaint, ¶ 6. The Disallowed Claim was attributable solely to the disallowance of a charitable deduction in the amount of $539,964.00 for the gift of a remainder interest in the Trust to Section 501(c)(3) Charities. Stipulation, ¶ 21. The Estate appealed the Disallowed Claim on or about 22 May 1992. Id., ¶ 22.

On or about 29 July 1993, the IRS issued a Final Notice of Disallowance of the Claim for Refund I in the amount of $172,098.00 of estate tax. Id., ¶ 23. The parties agree the Estate timely paid Federal estate taxes of $172,098.00, interest of $166,396.57 and penalties of $43,024.50 on or about 20 December 1994. Id., ¶ 24.⁷ The tax, interest and penalties paid totaled $381,519.07. Id. On or about 7 April 1995, the Estate timely filed a second Claim for Refund (the "Claim for Refund II") seeking a refund of the payment of Federal estate taxes, interest and penalties in the amount of $381,519.07.⁸ Id., ¶ 25. The Estate requested the IRS immediately deny the Claim for Refund II.⁹ Id.

D. Procedural History

On 14 February 1995, the Estate filed the Complaint initiating this action. The Government filed an answer and issue was joined on 23 May 1995. The parties completed discovery and thereafter agreed upon the Stipulation. Both parties seek resolution of this matter pursuant to Rule 56 of the Federal Rules of Civil Procedure.

The Estate alleges entitlement to a refund of taxes, interest and penalties arguing the remainder interest of the Trust qualifies for a charitable estate tax deduction pursuant to section 2055(a) of the Code, 26 U.S.C. § 2055(a). Complaint, ¶ 14; Estate Brief at 6. The Estate acknowledges the Trust does not comply with certain requirements of the Code relating to charitable deduction but asserts the Trust should be afforded reformation relief under current section 2055(e)(3)(C) of the Code. Estate Brief at 7-8. The Estate claims the Trust is not subject to the requirement that reformation be sought by 31 December 1981. Id. at 8-10 (arguing against application of 26 U.S.C. § 2055(e)(3)(C) (1984) as in effect through 17 July 1984). The Estate further asserts the Trust contains an ascertainable reformable interest.¹⁰ Id. at 11-13.

The Government argues the Trust is ineligible for charitable deduction and Testatrix's pour over into the Trust was therefore not eligible for the claimed charitable contribution deduction either. Government Brief at 9-14. The Government also contends the remainder interest is not entitled to a charitable contribution deduction because the amount of the charitable bequest cannot be ascertained. Id. at 15.

Discussion

A. Summary Judgment Standard of Review

To prevail on a motion for summary judgment, the moving party must establish "there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The present task is to determine whether disputed issues of fact exist and whether one party is entitled to judgment. A district court, however, may not resolve factual disputes on a motion for summary judgment. Linan-Faye Constr. Co. v. Housing Auth., 49 F.3d 915, 926-27 (3d Cir.1995) ("at the summary judgment stage, `the judge's function is not himself or herself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial'") (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986)); Desvi, Inc. v. Continental Ins. Co., 968 F.2d 307, 308 (3d Cir.1992). In considering a motion for summary judgment, all evidence submitted must be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Healey v. Southwood Psychiatric Hosp., 78 F.3d 128, 128-31 (3d Cir.1996); General Ceramics Inc. v. Firemen's Fund Ins. Co., 66 F.3d 647, 651 (3d Cir.1995).

The dispute between the parties in this case rests on conflicting interpretations of current and former versions of section 2055 of the Code. As discussed, the parties have stipulated to the facts relevant to this dispute. The resolution of issues depends wholly upon the interpretation of specific statutory language and the applicable law. Summary judgment is therefore appropriate. See DiBiase v. SmithKline Beecham Corp., 48 F.3d 719, 724 (3d Cir.), cert. denied, ___ U.S. ___, 116 S.Ct. 306, 133 L.Ed.2d 210 (1995); see also Gans v. Mundy, 762 F.2d 338, 341 (3d Cir.) ("summary judgment is proper where the facts are undisputed"), cert. denied, 474 U.S. 1010, 106 S.Ct. 537, 88 L.Ed.2d 467 (1985).

B. Burden of Proof

A taxpayer in a refund action has the burden of...